Portfolio Change - Demerger of EDV from WOW
Post Demerger WOW remains the largest supermarket across Australia and New Zealand with $53 billion of revenue and an even more robust balance sheet with net cash of ~$75m. Endeavour Group will become the largest Australian pure play exposure to both retail drinks & hotels with a portfolio of 250 Dan Murphy’s stores, 1392 BWS outlets and 293 hotels. Woolworths and Bruce Mathieson Group (BMG) will each hold a 14.6% interest in Endeavour Group after the demerger.
Endeavour Groups Retail Drinks division has been a clear beneficiary of the shift to off-premise liquor consumption with online sales growing strongly throughout the COVID pandemic. Whilst, off premise consumption patterns should moderate as the economy reopens, the retail division remains well placed to benefit from greater penetration of its own label brands (Pinnacle Drinks) and the trends in the premiumization of liquor consumption.
Conversely, EDV’s Hotel business has been materially impacted by COVID lockdowns on venue capacity resulting in a decline of revenue of ~21% in FY20, however, activity levels should rebound strongly as restrictions ease.
Endeavour Groups leading position in both Retail Drinks and Hotels provides the opportunity to further increase their competitive position in businesses that have historically delivered strong cash generation thereby providing shareholders with an attractive stream of dependable earnings and dividends. It is also notable that the ASX 200 has been the bedrock for numerous successful demergers, most recently the Wesfarmers/Coles demerger illustrative of a favourable outcome for investors.